When we think of soda, the two giants that come to our minds are inevitably Coca-Cola and Pepsi. Ahhh, the sweet sweet elixir that I must have with pizza or fried chicken or a burger. At our house, I like the taste of Pepsi, while wifey likes Coca-Cola and my son will drink the water-downed version of either J The difference in taste is not that significant, and apart from some things, I’ve found that this is true for the two companies themselves. Coca-Cola’s origination dates back to 1886, so it’s been around for over 100 years. The KO went public in 1978. For Pepsi, it’s been around since 1893 (with the name Brad’s Drink, but a few years later renamed to Pepsi) and its stock went public in 1999.
KO has a market cap of almost $197B, pays a dividend of .37 cents per quarter and has a yield of 3.22. Per its 10k filed in February 2017, Net Revenue dropped by about $2.4 billion.
PEP on the other hand has a market cap is over $160B, pays a dividend of .75 cents per quarter and has a yield of 2.65. Per its 10k filed in February 2017, Net Revenue dropped from 2015 to 2016 by $1.7 billion.
However, fast forward to spring 2017, Market Exclusive reported Q1 2017 EPS of .94 and revenue of $12.05 billion beating analyst estimates of $11.98 billion. How about we look at a couple of ratio’s real quickly. For 2016 as reported on Yahoo Finance, the Current Ratio for PEP (current assets/current liabilities) is 1.28. For KO it’s 1.28 as well (wow didn’t expect them to be the exact same). How about the P/E (price to earnings or how good of a value each stock is)? PEP’s P/E is 26, while KO’s is 29. PEP’s lower P/E suggests it may be a bit undervalued as compared with KO especially given its growth trends I’ll mention later. And finally, we move on to Return on Equity (ROE), measuring how well management is working on utilizing the company’s resources to generate a profit. ROE is net income/shareholders equity. For PEP it is 54.92% and for KO it’s 26.74%. Wow, PEP’s ROE is double that of KO. Please note this is just as I’m reporting it from Yahoo Finance, but I also understand that ROE can be artificially boosted.
Changes at KO
Recently the new CEO James Quincey is working to make KO a leaner business. It plans to “cut costs by an additional $800 million a year, adding to a plan to wring $3 billion in savings…including 1,200 job cuts through 2018.” In contrast to PEP, KO’s revenue fell last quarter by 11%. One can predict that as a result of these changes in structure, the P/E ratio may be higher because investors believe in the changes KO is making and thus the stock price will increase as a result in the future.
PEP – Diversified in Business
Do you know that the Pepsi portfolio contains 22 brands? From Pepsi to Tropicana, to Gatorade and more food products like Frito-Lay to Quaker Foods, the product portfolio is huge. Take a look at the pic below:
As everyone has heard of Pepsi, even more have heard of Coca Cola – KO. It’s the leading soda company in the world with a market cap of over about $198 billion. Even though KO is bigger, one can argue, just by the comparison chart below from Google Finance that PEP (in blue) has been growing at a faster rate than KO (in red). In a 5 year span, PEP has grown around 3 times faster than KO.
Love Their Commercials – PEP Marketing
Marketing is all about capturing your target audience and influencing them that they’ll be happy and satisfied with the purchase of your product. For PEP, this means that drinking it will ensure you have a good time or maybe get to go on an adventure, or just laugh and want it for no other reason. I remember seeing the below commercial many years ago and found it to be pretty funny. I was surprised to find it on YouTube with so few hits.
Also in terms of marketing, I can proudly say I still have my Pepsi sunglasses case 21 years after their 1996 “Pepsi Stuff” event. It’s biggest campaign where it planned to distribute more than 7 billion points on more than 4 billion packages of Pepsi products.
Snapshot Side by Side (Why Didn’t I Do This Before)
|Measurement @ 5/18/2017||KO||PEP|
Source: Google and Yahoo Finance
A bit of research in trying to find out the reason for this growth yielded that PEP has a more diversified diversification portfolio (hint: investor likey) of products and particularly healthier beverage option. Per thestreet.com “the company has been increasing its holdings of non-soda alternatives. CEO Indra Nooyi remarked on Wednesday that the company’s Naked Juice line is on track to becoming a billion-dollar brand.” I’ll mention at the end this time that I’m no expert at analyzing and comparing stocks. This was a fun exercise for me and two companies which I wanted to compare for some time.
So are you a Coca-Cola or Pepsi person? Apart from taste, which one do you like in terms of brand recognition, marketing, and overall consumer satisfaction?
I use Personal Capital because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!